EU Ministers Fail To Agree On Reduced VAT Rates

by Ulrika Lomas, Tax-News.com, Brussels

16 September 2008

The German government has once again made known its opposition to an EU proposal that would allow member states to lower the rates of VAT on certain labour intensive services.

German finance Minister Peer Steinbrueck told a media conference on Saturday following a meeting between EU finance ministers in Nice that Germany was "downright sceptical" about the merits of the plan, and believed that it will have little beneficial impact for consumers.

Steinbrueck also expressed Germany's fear of where reduced VAT rates "would lead to," reiterating his argument that governments which chose not to lower VAT rates would soon be under pressure to do so to match those rates in neighbouring countries.

Austria and Denmark have also come out in opposition to the plan.

In July, Taxation Commissioner Laszlo Kovacs unveiled a proposal to amend the EU VAT Directive so that member states could reduce VAT on labour-intensive services and locally supplied services on a permanent basis, such as restaurants and hairdressers.

Most of the services in question are already eligible for a reduced rate, but only 18 member states have permission to levy VAT rates below the 15% standard EU level on labour-intensive local services, and only for a limited period, running until 2010. The aim of the EU plan is to make these reduced rates permanent and open to all member states.

Recommended